Fiscal policy responsiveness, persistence, and discretion

This paper analyzes the different characteristics of fiscal policy using a two-step estimation procedure First, we decompose both government spending and government revenue into three components responsiveness, persistence and discretion Second, we assess the determinants of these characteristics Using data from 132 countries, our results show that fiscal policy is more persistent than responsive to economic conditions, which implies that the authorities may have less leeway in the, short-run notably to curb spending behavior In addition, countries characterized by greater fiscal persistence have less discretion and responsiveness Finally, macroeconomic, institutional and geographic variables explain cross-country variation in fiscal characteristics